Middle East Downturn To Weigh On Thai Car Production

BMI View : We are revising our passenger car production forecast to a contraction of 0.8% in 2017, down from growth of 1.7% previously, as a downturn in car demand in one of the country's key export markets, the Middle East, weighs on local autos manufacturing.

Having previously expected a revival in domestic vehicle sales and robust demand throughout ASEAN region to drive positive growth in local autos production ( see 'Domestic Recovery And ASEAN Markets To Support Autos Production', May 31), we are now revising down our forecast for passenger car production in Thailand to a contraction of 0.8% in 2017, down from growth of 1.7% previously. This downbeat outlook is largely driven by negative pressure on local car output from a downturn in vehicle demand from the Middle East, a market which accounts for around 18% of Thailand's total autos exports.

Outlook For 2017 Turning Negative

Thailand - Passenger Car Production, Units

f = BMI forecast. Source: OICA, Federation Of Thai Industries, BMI

With Saudi Arabia, the United Arab Emirates (UAE) and Oman accounting for well over 50% of the market share of all Thai-made vehicles exported to the Middle East ( see chart below), we expect that the fall in car demand in these countries will weigh on Thailand's domestic autos production. As evidence of this, official market data showed that Thai-made vehicle shipments to the Middle East fell by 45.3% y-o-y in 7M17, contributing to the 1.7% y-o-y decline in car production over the same period.

Fall In Demand In Middle East To Hurt Exports

Share In Value Of Autos Exports To Middle East In 2016, %

Source: Trademap, BMI

We forecast passenger car sales in Saudi Arabia, the UAE and Oman to fall by 20%, 12% and 20%, respectively, in 2017. This regional downturn in sales comes on the back of unfavourable economic backdrops due to low oil prices, which will weigh on consumer spending ( see 'Further Sales Declines From Increased Spending Pressures', April 25). Since the Middle East is a key destination for Thai-made pick-up trucks (which are considered as LCVs in our data series for Thailand), this demand weakness will be the main reason behind our forecast for light commercial vehicle (LCV) production to fall by 4.0% in 2017.

In 2018, however, autos sales in Saudi Arabia, the UAE and Oman will gradually recover as these economies stabilise. This recovery in these major Middle Eastern markets will, therefore, support a return to positive growth in Thailand's LCV production next year, which will expand 1.5% according to our forecast.